All Things Considered, February 6, 1996: Interview with Paul Krugman


ROBERT SIEGEL, Host: Technology produces jobs. Economists have been saying as much ever since the Industrial Revolution when small farmers began moving from fields to factories. In the 1960s, some radical social thinkers warned of the perils of unbridled automation. But at that time, the majority of their colleagues dismissed those concerns and worried more about the problems that might accompany an increase in leisure time. Well, now with the growing gap between rich and poor, the role of technology is again being scrutinized. Most economists continue to believe that technological change creates more jobs than it destroys. But a growing number see technology as the driving force behind America's growing inequality. NPR's Margot Adler reports.

MARGOT ADLER, Reporter: When economists are asked, 'What has caused the growing disparity in wages and wealth over the last 15 or 20 years?' they mention three issues - technology, the impact of a global economy, and something much fuzzier to talk about, what might be described as a breakdown in social norms. Paul Krugman is a professor of economics at Stanford University and the author of Peddling Prosperity. He tells of a recent meeting of economists where they were polled. They were asked what weight they would give to assorted explanations for America's increasing inequality. Most economists, says Krugman, said globalization was only responsible for 10 percent. Technological change came in at about 60 percent. Now, globalization is a popular explanation in the country today promulgated by Pat Buchanan, Ross Perot, and any number of union leaders. Intuitively, it seems right when people say, look at the billions we are importing from China and the Third World. Look at the $60 billion of capital that flowed to less developed countries in the last year alone. But while it seems to make sense emotionally, says Krugman, it doesn't explain much.

PAUL KRUGMAN, Economist, Stanford University: Once you realize that we're a $7 trillion economy with 120 million workers, those numbers don't sound at all impressive. What it comes down to is that the movements of capital to the Third World have been a very small fraction of the total amount of investment, that the imports of goods from these low-wage countries, while much bigger than they used to be, are still only about 2 percent of our total spending in this country.

MARGOT ADLER: Krugman believes international trade has knocked only 1 or 2 percent off the wages of unskilled workers. But something is happening, and what is clear, says Krugman, is that the demand for college educated workers is increasing sharply in every industry across the board, even though hiring such a worker is more expensive.

PAUL KRUGMAN: Something is making it necessary to employ a lot more highly skilled workers and allows you to get by with fewer less-skilled workers than before. and that's technology in the broad sense. That modern high technology is something that pushes you towards really wanting to hire very highly skilled workers, and so at least at this point it looks as if that has got to be our prime candidate for explaining what's going in inequality.

MARGOT ADLER: And here's an interesting side note. If you were assuming that all aspects of growing inequality are bad - not an uncommon assumption - think about this. Twenty years ago, there was less incentive for a college education. There were plenty of good jobs that didn't require it, and people were actually writing articles warning of the danger to America if college enrollment declined. It's hard to envision anyone writing that article today. If economists who were polled said technology and globalization accounted for about 70 percent of America's growing inequality, what about that other 30 percent? Krugman says there is a social component that most economists don't want to talk about because it's not very scientific. But privately, many economists might say that there has been a change in social norms.

PAUL KRUGMAN: You didn't used to pay janitors as little as the market would bear and pay CEOs 100 or 200 times what the average employee is paid. And that's the third explanation. And there's a lot of, I'd say, serious research about trying to figure out the relative role of those three different stories.

MARGOT ADLER: Now when most people think about inequality, they think about the top versus the bottom, the skilled versus the unskilled. But Lester Thurow, an economist with the Sloan School of Management at MIT, says two-thirds of the new inequality is inequality within a group, not between groups.

LESTER THUROW, Economist, Sloan School of Management, MIT: If you take the unskilled, the gap between the highest paid and the lowest paid has really gotten bigger. Or if you take the skilled, the gap between the highest paid and the lowest paid has really gotten bigger. And so it's within group inequality where most of the action is as opposed to between group.

MARGOT ADLER: Now you might say, look, there are vast differences between the best and the worst in every field, be they doctors or plumbers or corporate executives. But Thurow and others are talking about something else. Take the salaries of CEOs.

LESTER THUROW: It's not just that the CEO salary gap has widened enormously compared to the lowest paid person in the firm, the CEO salary gap has widened enormously compared to the number two person in the firm. And it's very hard to argue that there's a big talent or a skill gap between the number one person in a big industrial firm and the number two, but we've now got these enormous salary gaps.

MARGOT ADLER: Some people have called this the celebrity factor. The title of a recent book called it 'the winner take all society.' Paul Krugman says, think of it this way.

PAUL KRUGMAN: It used to be that there were hundreds of comedians making a decent living, providing live shows to the Borscht Belt. Now there's Jay Leno.

MARGOT ADLER: Technology allows one person or a small group to dominate a market. And it's not only true in entertainment or sports.

PAUL KRUGMAN: You see that the top paid lawyers, the top executives, have a kind of larger reach, a greater span of control than they used to because technology makes it possible for them to do it, even if they themselves are not experts in the technology.

MARGOT ADLER: Now, some people are arguing that this trend is really part of a larger picture, that work as we know it -- full time, lifetime guaranteed work -- is becoming a relic, available only to an elite. This argument appears in two recent books, The End of Work by Jeremy Rifkin and The Jobless Future, Sci-Tech and the Dogma of Work by Stanley Aronowitz [sp] and William Defazio [sp]. Some of these arguments have also appeared in The Bell Curve by Murray and Herrnstein. Stanley Aronowitz is a professor of sociology at the Graduate Center of the City University of New York.

STANLEY ARONOWITZ: Sociology Prof., Graduate Center, CUNY: The old technological revolution produced work; the new technological revolution destroys work, destroys paid work. There's plenty of work going on but not paid work.

MARGOT ADLER: Aronowitz argues that most the economy's growth over the last 30 years was connected with Cold War industries. When profits leveled off in the early seventies, he says, American corporations developed three strategies - they merged with each other, cutting out whole layers of workers from industrial and clerical to managers and professionals, companies moved to greener pastures and third, they began a technological revolution with computer mediated work.

STANLEY ARONOWITZ: Robotization, numerical controls, the use- the widespread use of the computer in the office, laser technologies, and among professionals the widespread use of computers in medicine, in law, in engineering and administration on a wide scale, which meant that there was a lot of functions that used to be performed by human beings now were being performed by machines.

MARGOT ADLER: The result, according to Aronowitz, is a loss of jobs, and the solution he proposes is job sharing and the shorter work week. In Germany the work week is already down to 35 hours. Most mainstream economists, both liberal and conservative, disagree with Aronowitz's analysis. Most do say that guaranteed lifetime employment will be less common, but most say there will be jobs and lots of them.

MICHAEL NOVAK, Dir., Social and Political Studies, American Enterprise Institute: There are more people of both genders working and a higher proportion of Americans working than at any time in our history. We're very close to the high, or within a percentage point of the high ever.

MARGOT ADLER: Michael Novak is the director of social and political studies at the American Enterprise Institute. He says if you take married people, the unemployment rate is just about 3 percent.

MICHAEL NOVAK: We have created something like 40 million new jobs just since 1970 in this country. It's an incredible job machine. And moreover, as both spouses work there are more services that they need to draw on and that there are just more jobs being created and services to serve the needs of people who are both working.

MARGOT ADLER: Of course, the counter argument is that many of the new service jobs pay the minimum wage and many new jobs are part time and many part-time workers are not part time by choice. But with the exception of radical theorists like Aronowitz, most conservatives and liberals argue that technology will aid job creation. Human imagination is boundless, one economist told me, in creating new demands. Paul Krugman believes that there are many jobs that computers will not be able to do. Computers may well replace programmers someday, he says, but health care workers and gardeners may have a flourishing future.

PAUL KRUGMAN: If you think about trying to recognize a person's face, that's something that a two-year-old can do extremely well, which is still nearly impossible for computers. It turns out that, you know, human beings are not designed for logical calculation, not designed to crunch large quantities of numbers, which is what computers are good at. But they are designed to recognize patterns, actually move about in space, generally deal with the world directly, which is extremely, extremely hard to get machines to do. So you can make an argument, and I think there's actually a strong case for it, that if one looks out 10 or 20 years from now, we'll be in a situation where a lot of highly skilled professions will actually end up being displaced by sophisticated computers. Whereas, a lot of what we think of as unskilled professions but are actually extremely subtle, like cleaning houses, providing personal care, will actually have booming demand because those are the things that we cannot automate away.

MARGOT ADLER: So, if you look at a list of what are projected to be the 20 fastest growing occupations in the year 2000, only two of them are in the computer industry. But you will find nursery school teacher, physical therapist, and manicurist. Of course, will someone pay a manicurist what they once paid a systems analyst? No one really knows whether the shocks of this new technological revolution will continue to increase inequality and to increase the premium on highly skilled, educated workers. It is interesting to note that several European countries are experiencing some of the same technological shifts but are not experiencing as much of an increase in inequality. Lawrence Katz [sp] is a professor of economics at Harvard University. He says that while wages are determined by demand and supply, the rules of the game can differ depending on the country. And in the U.S., where there is less regulation and weaker unions, wages can fluctuate more freely. This is particularly true now, says Katz, when the real value of the minimum wage has eroded and unions are in a state of decline.

LAWRENCE KATZ, Economics Prof., Harvard Univ.: So, despite the fact that technological change and trade seem very similar in these other countries outside of Britain, which has a very flexible system since Thatcher. One doesn't see inequality increasing as much in places like Germany or France - in fact, zero in Germany, very little in France, a little bit in places like Sweden and Italy.

MARGOT ADLER: Some economists suggest that all these technological shocks are temporary. Paul Krugman says perhaps some day when computers take over many of the difficult skills, those things that every human being can do well will be the most valued and will even be well compensated, and the current age of inequality will give way to an age of equality. It's certainly a happier view of the future than the current cyber punk vision - multitudes of the unemployed controlled by a small and ruthless technological elite. I'm Margot Adler reporting.

ROBERT SIEGEL: The United States is still a magnet for millions of people from around the world who hope their hard work and perseverance will pay off here. But prosperity has eluded many Americans. Tomorrow, a look at whether America is still the land of opportunity, as our series on the income gap continues.

Originally broadcast, 2.6.96